Income Taxes

3 Months Ended

Aug. 02, 2025

Income Tax Disclosure [Abstract]

Income Taxes

Note 4. Income Taxes

For the three months ended August 2, 2025, the Company utilized the discrete effective tax rate method, treating the year-to-date period as if it was the annual period to calculate its interim income tax provision, as allowed by ASC 740-270-30-18, “Income Taxes-Interim Reporting.” The Company concluded it could not use the estimated annual effective tax rate method as it could not calculate a reliable estimate of the annual effective tax rate due to it being highly sensitive to minor changes in the forecasted amounts, thus generating significant variability in the estimated annual effective tax rate and distorting the customary relationship between income tax expense and pre-tax loss in interim periods.

The Company’s income tax expense and effective tax rate for the three months ended August 2, 2025 and July 27, 2024 were as follows:

	Three Months Ended
	August 2, 2025			July 27, 2024
($ in millions)	(13 Weeks)			(13 Weeks)
Pre-tax loss	$	(6.1	)	$	(13.1	)
Income tax expense		4.2			5.2
Effective tax rate		(68.9	)%		(39.7	)%

The effective tax rate for the three months ended August 2, 2025 differs from the U.S. federal statutory tax rate of 21% primarily due to an increase in a valuation allowance for deferred tax assets of $1.7 million, an unfavorable impact from global intangible low-tax income (“GILTI”) and non-deductible interest, partially offset by the impact of income derived from foreign operations with lower statutory tax rates. The effective tax rate for the three months ended July 27, 2024 differs from the U.S. federal statutory tax rate of 21% primarily due to an increase in a valuation allowance for deferred tax assets of $4.3 million and an unfavorable impact from GILTI, partially offset by the impact of income derived from foreign operations with lower statutory tax rates and research deductions claimed in foreign jurisdictions. The valuation allowance was recorded as the Company determined that based on the evaluation of all available evidence that the recovery of some of its deferred tax assets was not more likely than not.

The Organization for Economic Cooperation and Development’s (“OECD”) Pillar II Initiative introduced a 15% global minimum tax for certain multinational groups exceeding minimum annual global revenue thresholds. Some countries in which the Company operates have enacted legislation adopting the minimum tax effective January 1, 2024. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which the Company operates have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. For fiscal 2026, the Company performed a calculation of an additional top-up tax under the safe harbor Pillar 2 Framework to determine the jurisdictions where the effective tax rate fell below the minimum threshold of 15% and included the results in income tax expense for the period.

The Company’s gross unrecognized income tax benefits were $0.9 million and $0.8 million as of August 2, 2025 and May 3, 2025, respectively. If any portion of the Company’s unrecognized tax benefits is recognized, it would impact the Company’s effective tax rate. The unrecognized tax benefits are reviewed periodically and adjusted for changing facts and circumstances, such as tax audits, the lapsing of applicable statutes of limitations and changes in tax law. The Company recognizes interest and penalties related to income tax uncertainties in income tax expense. Accrued interest and penalties were $0.1 million and $0.1 million as of August 2, 2025 and May 3, 2025, respectively.

On July 4, 2025, the United States Congress passed the budget reconciliation bill H.R. 1, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent many of the provisions previously enacted as part of the 2017 Tax Cut and Jobs Act that were set to expire at the end of 2025 and includes other changes to certain U.S. corporate tax provisions. The changes to U.S. tax law that were enacted under the OBBBA include modifications to capitalization of research and development expenses, changes to interest expense limitations and accelerated fixed asset depreciation. Based on the Company’s current U.S. tax position, the changes did not have a significant impact to the effective tax rate.